Binance: $4 Billion Settlement for Money Laundering and Sanctions Breaches

In a momentous development within the cryptocurrency landscape, Binance, one of the globe's foremost cryptocurrency exchanges, has openly admitted to engaging in money laundering and violating sanctions laws. The exchange has reached an unparalleled settlement exceeding $4 billion with U.S. authorities, heralding a significant shift in the accountability landscape for major entities in the dynamic realm of digital assets.

Changpeng Zhao, the high-profile CEO of Binance, has pleaded guilty and announced his resignation as part of this historic settlement. The former Chief Compliance Officer, Samuel Lim, is also implicated, marking a milestone agreement signaling a departure from the perceived impunity of major players in the cryptocurrency sector.

The disclosed court documents offer a damning exposé of Binance's operations, revealing that the exchange became a hub for a plethora of illicit activities, catering not only to international terrorists but also enabling customers from sanctioned countries like Iran, North Korea, and Syria to seamlessly access its platform. U.S. Treasury Secretary Janet Yellen did not mince words, accusing Binance of "turning a blind eye" as it facilitated notorious groups like Hamas’ Al-Qassam Brigades, Palestinian Islamic Jihad (PIJ), Al Qaeda, and ISIS.

The settlement, a result of negotiations with various U.S. regulatory bodies, imposes staggering penalties on Binance. The Financial Crimes Enforcement Network (FinCEN) has slapped an unprecedented $3.4 billion fine for Anti-Money Laundering (AML) violations, while the Office of Foreign Assets Control (OFAC) has added a substantial $968 million penalty for sanctions violations. These penalties underscore the gravity of Binance's offenses and convey a resounding message to other entities in the cryptocurrency domain.

The U.S. Treasury Department cataloged a series of failures on Binance's part, notably the absence of programs to prevent transactions with terrorists, ransomware attackers, and money launderers. Astonishingly, Binance is alleged to have failed to report over 100,000 suspicious transactions, allowing funds to flow without hindrance to illicit actors. This systemic lack of robust controls has compromised the very integrity of the financial system.

As per the settlement terms, the Department of Justice (DOJ), the Commodity Futures Trading Commission (CFTC), and FinCEN will be closely monitoring Binance's compliance. An unprecedented five-year monitoring mechanism will retain access to Binance's records, ensuring meticulous adherence to the settlement terms. This level of oversight sets a new standard in the cryptocurrency industry, reflecting the authorities' determination to hold Binance accountable.

Treasury Secretary Yellen underscored the severity of Binance's transgressions, asserting that the exchange's willful failures had facilitated the flow of money to terrorists, cybercriminals, and individuals involved in child exploitation. The penalties imposed are not merely punitive; they are intended to establish a precedent for the entire virtual currency industry, emphasizing the critical importance of compliance with U.S. laws and regulations.

FinCEN's $3.4 billion settlement is truly historic, representing the largest penalty in both U.S. Treasury and FinCEN history. Binance, in its admission of guilt, acknowledged that it willfully operated as an unregistered money services business (MSB), concealing its ties to the U.S. and failing to establish an effective AML program. This negligence allowed a spectrum of illicit actors to transact freely on the platform, posing a severe threat to the integrity of the financial system.

The allegations against Binance encompass its failure to report transactions associated with terrorist groups such as Al Qaeda, the Islamic State of Iraq and Syria (ISIS), Hamas’ Al-Qassam Brigades, and Palestinian Islamic Jihad (PIJ). Moreover, despite being a significant beneficiary of ransomware proceeds, Binance is accused of neglecting to report transactions linked to ransomware attacks.

The OFAC's $968 million penalty sheds light on the egregious nature of Binance's conduct and the sheer volume of its transactions. Between August 2017 and October 2022, Binance executed more than 1.67 million virtual currency trades on its Binance.com platform involving U.S. persons and users in sanctioned jurisdictions and blocked persons. Binance is alleged to have knowingly subverted its sanctions compliance controls, even suggesting that users employ virtual private networks to bypass its geofencing controls.

The settlement, incorporating criminal charges and civil penalties, is the outcome of a concerted multi-agency effort that includes contributions from the Internal Revenue Service Criminal Investigation (IRS-CI). The IRS-CI led the criminal investigation into Binance and its founder, revealing a lack of an effective AML program, failure to register as a money transmitter, and willful violation of U.S. sanctions tied to the International Emergency Economic Powers Act.

In a startling revelation, court documents unveil extensive efforts by Binance's top executives, including CEO Changpeng Zhao, to circumvent laws, including sections of the Bank Secrecy Act (BSA). These laws mandate financial institutions to ascertain their customers' true identities, refrain from doing business with criminals or sanctioned individuals and companies, and report suspicious activities. The documents also indicate that Zhao was cognizant of the inadequacy of Binance's efforts to prevent individuals from sanctioned countries from conducting business on the platform.

Additionally, Binance's business practices are scrutinized, with allegations that it conducted business with U.S.-based firms on its Binance.com platform, despite being prohibited from having such customers. The separate platform, Binance.US, owned by Zhao, was mandated to handle U.S. business and adhere to the country's AML laws. However, court filings suggest that Zhao and other Binance employees opted to have the main cryptocurrency exchange handle significant customers, known as VIPs, rather than the designated U.S. platform.

A June 2019 call is cited in the court documents where Zhao reportedly advised Binance employees to communicate with U.S.-based VIP customers using methods like phone calls that would leave "no trace" of the interactions. Additionally, Binance is accused of offering certain important customers the opportunity to regain access to its main trading platform, even after being expelled due to concerns about criminal activity.

To add to the gravity of the situation, a July 2020 incident is highlighted in the court papers, wherein Binance employees identified a user as a "top contributor to illicit activity," barred the user from the platform, and then discussed providing instructions for opening a new Binance account without revealing any previously identified troublesome connections.

The settlement agreement mandates Binance to pay $1.81 billion within 15 months and an additional $2.51 billion in forfeiture. The financial penalties are designed not only to hold Binance accountable for its past actions but also to instigate a profound transformation in its business practices and compliance mechanisms. Importantly, Binance will be subject to a monitoring period to ensure adherence to the settlement terms, and failure to comply could expose the exchange to further significant penalties, including a $150 million suspended penalty that FinCEN could collect if Binance fails to meet the required compliance undertakings and monitorship.

In conclusion, this landmark case against Binance marks a pivotal moment in the regulation and oversight of the cryptocurrency industry. The sheer magnitude of the settlement, the unprecedented level of regulatory scrutiny, and the multi-agency collaboration reflect a concerted effort by U.S. authorities to ensure that major players in the cryptocurrency space adhere to the highest standards of legality and compliance. The case against Binance underscores the industry's need for robust AML and sanctions compliance programs, and it serves as a stern warning to other entities in the sector that neglecting these standards will not be tolerated.

By fLEXI tEAM